Defining a Construction Budget; The 2014 Cheat Sheet
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BUILD breaks down the construction and project costs for a healthy economy with an update to the Construction Budget Cheat Sheet.
Five and a half years ago, after seeing many shifting — and shifty — budget conversations, we decided to take the topic of construction costs head-on and create a Residential Construction Cost Cheat Sheet. As a design-build practice, discussing the finances of design and construction couldn’t be more important. The goal was both simple and far-reaching. We wanted to create a straightforward baseline for discussing project costs (simple) and one that our industry could start using to help compare apples to apples (far-reaching).
As fortune would have it, our readers were engaged and it has gone on to be one of our most searched and read posts in the history of the BUILDblog. It has served a useful purpose and, since its introduction, we’ve been having ever-more informed conversations about constructions costs with current and potential clients.
And then, since 2014 started with great promise, many Seattleites (and Pacific Northwesterners in general) are feeling flush again, industries are booming, and the future never looked brighter. It would seem as though the trials of the great recession have been left behind, but alas, a booming economy brings about its own set of challenges. Recently we’ve noticed that the increase in construction costs, which has been fairly linear over the last decade, has sharply accelerated. Within the first half of this year alone, construction pricing and related costs have escalated disproportionately and each time that we feel like we catch our breath, a new wave of cost increases crashes over.
As alarm bells have gone off, we realized that both the Residential Construction Cost Cheat Sheet of 2009, and our conversation about costs, are in need of a timely update. So without further ado, welcome to the 2014 Residential Construction Budget Cheat Sheet, and the adjusted construction costs of a healthy economy.
It’s worth breaking things down a bit further to better understand why we’re seeing construction cost increases of this magnitude. At least here in the Pacific Northwest, we’re noticing that several items have either been introduced within the last five years or have been significantly intensified recently. These items, more than others, have fueled the construction cost acceleration.
BUILDING DEPARTMENT REGULATIONS
The requirements around drainage, impervious surface area, and storm water management have become permitting projects in and of themselves in the Pacific Northwest. The design requirements often introduce additional pages to the drawing set, days of extra design work, additional consultants, and time-consuming reviews at the city/county. The construction involves additional earthwork, finicky site measures, and significant increases to site labor — all to support both temporary and permanent measures. All of this has left us with the feeling of literally pouring cash into the ground.
The necessity of geotechnical engineering is almost a guarantee on residential projects now. In the previous decade, a geotechnical engineer was required by the building department on a project only when extreme environmental factors were present (e.g., steep slope, potential slide area, etc). Lately, building departments have added a geotechnical report to their standard permit submittals frequently enough that the geotech has become part of most design teams. This work requires additional site visits, construction inspection/observations, additional coordination, and expensive reports with added cost implications in construction.
On the permitting side of the equation, zealous plan reviewers are adding significant time and energy to the permit process. Whereas the permit review process used to be an evaluation of the construction documents, the permit requirements are now tangential to the point of requiring a set of drawings unique to the permit process alone. The additional time, energy, and costs of this are reflected (if not magnified) on site in both time and dollars.
In addition to these examples, we’re now finding that there are even instances where land use provisions are being misapplied to certain properties. A recent project of ours was forced into special ‘potential landslide’ guidelines (with associated permit, geotechnical, and physical costs) although no steep slides nor potential landslide areas were present nor found on any maps. After unsuccessfully pushing back, our only course to allow the project to continue was to agree to the stipulations.
Beyond the land use and building code impacts, the secondary codes (Mechanical, Electrical, Plumbing, etc.) are also introducing gratuitous provisions that make our heads (and wallets) hurt. A recent addition to the electrical code requires that all outlets in a home be GFCI protected (these are the little reset buttons residing on your bathroom and kitchen outlets). While GFCI protection makes sense at wet areas, this technology is an unwarranted level of protection throughout the entire house and a 5% increase to wiring costs. We are seeing these types of added provisions on nearly a daily basis.
More so than in years past, we’re noticing higher expectations on behalf of clients. It’s becoming more difficult (and expensive) to attain a level of acceptable completeness.
We’ve found ourselves in a bit of a Catch-22 here. We very much understand and appreciate that our clients are making a substantial investment in their project. It’s typically the single largest personal investment in their lifetime. For many, it may also be the only time they build new or substantially remodel. Without a doubt, the level of execution in construction should be high given the investment. We also do not take for granted that our clients trust us to lead them on this journey, including the journey of setting expectations and delivering on them. Lastly, we appreciate that our clients haven’t been able to find something they could simply purchase to meet their needs and desires, so they are hiring us to make it for them. That is a clear indication that this is very important to them.
Yet, we find this situation needs to be balanced with a reasonable level of execution. Many hands (and overlapping feet and tool belts and equipment) go into making the final product. While we don’t accept even a whiff of substandard work from any of these participants or their part, we do see that in the making of the sausage (careful what you watch), not every single inch of a project will reach perfection. It certainly could, but that’s a whole different level of budget that we are not promoting. As the cheat sheet above notes, achieving perfection is a 40%+ construction budget addition. Attaining flawless perfection in every aspect of a project isn’t what we consider to be cost-effective or even sensible. There is an acceptable level that we can agree to and deliver (and we may have another whole blog post on this topic).
As the suppliers and manufacturers recover from the dark times of the great recession, they’re now struggling to keep up with the demands of the industry and the new code provisions. Subsequently, their pricing is also increasing at a surprising rate.
OTHER & UNFORSEEABLE
There are other factors beyond our control or influence that we are continuing to uncover, or simply get smacked across the head with. For example, due to the amount of infrastructure work in Seattle, every single thing related to concrete (mixing, trucking, reinforcing, pumping) has seen unimaginable cost increases. We keep trying to peel the onion on items like this to reign in costs, yet it feels like the more we peel the larger the onion gets.
As a resourceful, cost-effective design-build practice, we’re obviously not fans of unnecessary cost increases. We like to think of ourselves as the group that produces effective and accurate design budgets that complement the elegant and functional homes we endeavor to create. Along with that philosophy, we’ve generated some methods for savvy clients to navigate through and minimize the escalating construction costs.
- Reuse the foundation of an existing home
- Be reasonable with what is sustainable
- Being “green” doesn’t always make sense
- Start thinking of sustainability more as built-in utility rather than as a fashionable trend
- Limit the amount of reviewers/variables on a project
- Find a good team and trust them
- Be reasonable with what is achievable in the finished product and set clear expectations with the builder (obvious defects get fixed, but ease up on total perfection or get your checkbook out)
Years ago we may have suggested that the ideas expressed above are simply our opinions and that there are different ways to go about designing, building, and financing a project. But with more experience under our belts and more projects added to the portfolio, what may have been subjective information is moving more into the knowledge-based category. Take it, leave it, or counter-offer. We’re always interested in your thoughts.
Cheers from Team BUILD